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Busting the Mythbusters

A former professor (and current mentor) of mine passed along this effort by the Department of Labor to bust minimum wage myths. Unfortunately, they failed at this. Most of the article is either incorrect, misleading, or formally illogical. This post will go through bit by bit to address the DOL’s article (some of the questions are legal questions and I won’t be answering those. I’m an economist, not a lawyer). Block quotes are from the article. Regular text are my responses.

Myth: Raising the minimum wage will only benefit teens.

Not true: The typical minimum wage worker is not a high school student earning weekend pocket money. In fact, 89 percent of those who would benefit from a federal minimum wage increase to $12 per hour are age 20 or older, and 56 percent are women.

This one is a strawman. No opponent of minimum wage has ever made this claim. What we have said is the gains to those who keep their jobs would go primarily to younger workers (age 25 and below). This is because that group constitutes the majority of minimum wage workers (approx 50%, according to the BLS).

Myth: Small business owners can’t afford to pay their workers more, and therefore don’t support an increase in the minimum wage.

Not true: A July 2015 survey found that 3 out of 5 small business owners with employees support a gradual increase in the minimum wage to $12. The survey reports that small business owners say an increase “would immediately put more money in the pocket of low-wage workers who will then spend the money on things like housing, food, and gas. This boost in demand for goods and services will help stimulate the economy and help create opportunities.”

The answer provided doesn’t answer the question. Opinions are fine, but they aren’t facts. Also, the logic of the business owners is flawed; no economist believes the demand would be significant. Plus, this leads to the question “if this is such a good plan, why aren’t businesses already doing it?”

Not true: In California, employers are required to pay servers the full minimum wage of $9 per hour — before tips. Even with a 2014 increase in the minimum wage, the National Restaurant Association projects California restaurant sales will outpace all but only a handful of states in 2015.

Another case where the answer provided didn’t answer the question. Sales are irrelevant to the question; we should look at the profits. Sales are rising because the consumer position is better. In fact, this is a national phenomenon . Without any attempt to correct for external factors, this answer provides no useful information.

Myth: Raising the federal tipped minimum wage ($2.13 per hour since 1991) would lead to restaurant job losses.

Not true: As of May 2015, employers in San Francisco must pay tipped workers the full minimum wage of $12.25 per hour — before tips. Yet, the San Francisco leisure and hospitality industry, which includes full-service restaurants, has experienced positive job growth this year, including following the most recent minimum wage increase.

This one suffers the same issue as the immediately prior question.

Myth: Raising the federal minimum wage won’t benefit workers in states where the hourly minimum rate is already higher than the federal minimum.

Not true: While 29 states and the District of Columbia currently have a minimum wage higher than the federal minimum, increasing the federal minimum wage will boost the earnings for nearly 38 million low-wage workers nationwide. That includes workers in those states already earning above the current federal minimum. Raising the federal minimum wage is an important part of strengthening the economy. A raise for minimum wage earners will put more money in more families’ pockets, which will be spent on goods and services, stimulating economic growth locally and nationally.

Again, the answer provided doesn’t answer the question (also makes the same “demand” mistake as the other one. Again, that one is unsupported by economists, even proponents of minimum wage).

Myth: Increasing the minimum wage is bad for businesses.

Not true: Academic research has shown that higher wages sharply reduce employee turnover which can reduce employment and training costs.

Higher wages do indeed reduce turnover, but, as noted liberal economist Paul Krugman has argued “Surely the benefits of low turnover and high morale in your work force come not from paying a high wage, but from paying a high wage “compared with other companies” — and that is precisely what mandating an increase in the minimum wage for all companies cannot accomplish.” In other words, if everyone’s special, no one is.

Myth: Increasing the minimum wage lacks public support.Not true: Raising the federal minimum wage is an issue with broad popular support. Polls conducted since February 2013 when President Obama first called on Congress to increase the minimum wage have consistently shown that an overwhelming majority of Americans support an increase.

Myth: Increasing the minimum wage will result in job losses for newly hired and unskilled workers in what some call a “last-one-hired-equals-first-one-fired” scenario.

Not true: Minimum wage increases have little to no negative effect on employment as shown in independent studies from economists across the country. Academic research also has shown that higher wages sharply reduce employee turnover which can reduce employment and training costs.

Yes, some research shows limited negative effects. But there are also many studies that show significant effects. Arindrajit Dube, a noted minimum wage proponent, finds about a 0.1% decline in employment with a minimum wage hike.

Nowhere is the problem of the marginal worker addressed.
If a person is unable to produce in excess of the minimum wage, she will either be let go, or not hired. With so many unemployed, employers can be choosier about whom they hire.